Tag: Kristalina Georgieva

The fragmentation of the global trading system has increased the spotlight on national security concerns, which prioritise localised production of goods like steel over their cost, says the IMF.

“In a multi-polar world, where things are made may matter more than how much they cost,” IMF managing director Kristalina Georgieva said last Thursday. “The logic of national security says that a broad range of strategic goods, from computer chips to steel, must be made at home, and that this is worth paying for. Self-reliance is staging a comeback.”

“All these concerns, taken together, have now bubbled over, leaving us in a world where industry gets more attention than the service sector; where national interests tower over global concerns; and where assertive actions trigger assertive reactions,” she added.

The IMF is due to release its latest World Economic Outlook this week. This will include notable markdowns, but not recession, Georgieva noted. There will also be markups to the inflation forecasts for some countries, Kallanish notes.

Global trade tensions are “boiling over”, she continued, largely as a result of an erosion of trust in the international system and trust between countries. “Global economic integration has lifted vast numbers of people out of poverty and made the world as a whole better off. But not everyone benefitted,” she commented.

These tensions create costly uncertainty. Imported inputs feed into a broad range of domestic products, and the cost of one item can be affected by tariffs in dozens of countries. “The result? Ships at sea not knowing which port to sail to; investment decisions postponed; financial markets volatile; precautionary savings up. The longer uncertainty persists, the larger the cost,” Georgieva said.

Rising tariffs also hit growth “upfront”. Trading partners do not bear the cost of tariffs alone. Importers pay some part through lower profits, and consumers pay some part through higher prices. Moreover, protectionism erodes productivity over the long run.

In the EU, German defence and infrastructure spending will lift domestic demand, as would EU-wide policies to improve competitiveness by deepening the single market. EU fiscal easing and stronger integration would lift growth, increase resilience, and improve both internal and external balances, Georgieva concluded.

Adam Smith Poland